Maybe refinancing has given you some breathing room in your budget by lowering your monthly mortgage payment, or allowed you to borrow some of your home equity for renovations. If interest rates drop, you might be tempted to refinance again. But is it possible — or even advisable — to refinance your mortgage more than once?
The short answer is yes. While there are technically no limits, how often you can refinance your home depends on why you want to do so, and whether it makes sense for you financially. Refinancing multiple times may come with consequences — financial and otherwise — that should be thoroughly considered before you take the plunge.
Here’s what you need to know about refinancing multiple times:
- How Many Times Can You Refinance a Mortgage?
- Reasons To Refinance More Than Once
- The Cost To Refinance More Than Once
- Obstacles To Refinancing More Than Once
- How Long Should You Wait Between Refinances?
- When Not To Refinance More Than Once
- What To Consider When Refinancing More Than Once
- FAQ: How Often Can You Refinance?
- The Bottom Line: How Often Can You Refinance a Mortgage?
How Many Times Can You Refinance a Mortgage?
Technically, you can refinance your home as often as you want, as long as you’re qualified. However, lenders may set their own rules for a waiting period between when you closed on your current mortgage and when you can refinance to a new loan. This might limit the number of times you could feasibly refinance. It’s best to contact your lender to check if there are any restrictions on refinancing.
How long you must wait may depend on the type of loan you’re refinancing to. For example, many conventional loans have a “seasoning requirement” for cash-out refinances. This generally means you need to wait at least six months after closing on your current mortgage to do a cash-out refinance.
Here’s how long common government-backed loans require you to wait before refinancing:
- Federal Housing Administration loans: You’ll need to have made at least six payments on the loan, had the mortgage for at least six months, and waited at least 210 days since the closing date to refinance an FHA loan.
- Department of Agriculture loans: You must have made at least 12 payments and had the mortgage for 12 months before refinancing a USDA loan.
- Veterans Affairs loans: These generally require a waiting period of 210 days from the first mortgage payment.
Reasons To Refinance More Than Once
When you refinance your mortgage, you’re taking out a new home loan to pay off your current one. Many borrowers refinance when their circumstances change, or when doing so will help them save money.
Change your interest rate type
A common reason why homeowners refinance their mortgage multiple times is to change the interest rate or loan term. Known as a rate-and-term refinance, this type of mortgage refinance allows qualified homeowners to switch their current mortgage to one that works better for them. For example, a borrower with an adjustable-rate mortgage who wants a more predictable payment schedule can switch to a fixed-rate mortgage instead.
Lower your interest rate
Even if you’ve done a rate-and-term refinance before, you can still apply for another refinance to lower your interest rate. If market interest rates drop, you may be able to lock in a new mortgage rate by refinancing and save more on interest over the life of the loan.
Change your loan term
Refinancing allows borrowers to change their loan term, which means extending or shortening the timeline of repayment. The most common loan terms are 30 years and 15 years.
Increasing the loan term usually lowers your monthly payments, because the repayment schedule is spread out over a longer period. This could give you more breathing room in your budget if you’re struggling to keep up with payments. At the same time, lengthening your loan term can mean paying more in total interest, since the interest on the loan has more time to grow.
While shortening the loan term may allow you to pay less in overall interest, your monthly payments will likely increase, which makes this move risky if you might run into trouble affording the higher payments.
Remove mortgage insurance
For conventional mortgages, borrowers are required to pay for private mortgage insurance if they put less than 20% down or have less than 20% home equity. Once you reach 20% equity, you can typically remove PMI by making a request with your lender.
Depending on your current loan, sometimes the only way to remove mortgage insurance is to refinance. Some types of mortgages, such as FHA loans, require mortgage insurance either for 11 years or for the full term of the loan, depending on your loan amount, term, and loan-to-value ratio.
Borrow your equity
Cash-out refinancing is where you refinance to a new loan for more money than you owe on your current loan. You pay off the old mortgage and then keep the leftover cash, which you can use for almost any purpose you like. Many homeowners use this option as a way to tap into their home equity and pay for major expenses such as renovations or improvements that can help increase their home’s value.
The Cost To Refinance More Than Once
The more times you refinance a mortgage, the more it could cost you. Here are some costs you can expect to pay when refinancing your mortgage.
You need to pay closing costs each time you refinance. Closing costs on a refinance average about $5,000, according to Freddie Mac. These costs are in addition to any prepayment penalties imposed by your current lender. You also should look into whether you need to pay taxes or other local fees on a refinance, says Chris Diodato, a chartered financial analyst, chartered market technician, and certified financial planner and the founder of WELLth Financial Planning in Palm Beach Gardens, Florida.
More interest paid
Lenders might offer a no-closing-cost refinance, where they recoup the closing costs by offering a higher interest rate or having the fees rolled into the borrower’s loan amount. With this refinancing option, you could end up paying even more than the original closing costs, since you’ll be forking over more interest with a higher rate or charged more total interest on the increased loan amount.
If you decide to take out a cash-out refinance, the total amount of interest you’ll pay could go up because your loan amount has increased. Additionally, the cash-out refinance may result in PMI payments if your equity dips below 20%.
A prepayment penalty is a fee that your current lender may charge if you refinance your loan, since you’re essentially paying off your loan early. This amount can either be a flat fee or based on a percentage of your loan amount. Read your loan terms to see what you could be paying in fees if there is a prepayment penalty.
Obstacles To Refinancing More Than Once
Is it bad to refinance your home multiple times? The answer depends on how it will affect your finances and goals. If you refinance several times — each at lower interest rates — and can easily recoup the costs, then it could be a good idea. However, there are many factors at work.
Your credit score may drop
Refinancing your mortgage can affect your credit score for a couple of reasons.
Firstly, every time you apply for refinancing, a hard inquiry may show up on your credit report when lenders pull your credit. Hard inquiries stay on your report for up to two years, and each one could drop your credit score by up to 5 points.
Additionally, refinancing means that the account for your current home loan will be closed. If you’ve had the same mortgage for many years, then the average age of your credit accounts will likely decrease — and negatively affect your score.
You don’t have enough equity
Typically, the more you have in home equity, the more favorable you look as a borrower when refinancing. The more equity you have, the more stake you have in your property, and therefore lenders generally assume you’re more likely to make on-time payments.
Lenders like to see that you have at least 20% home equity when refinancing. That being said, you could refinance with less than that — but your chances may be lower.
Your DTI ratio is too high
Another factor to consider, especially if you’re doing a cash-out refinance, is the size of your new mortgage. When you take on a bigger loan, your debt-to-income ratio will increase. Lenders use your DTI ratio to determine whether you’re able to make loan payments on time. If your DTI ratio increases too much, then you might not be eligible for other loans or future refinances.
Or, it could be that your current DTI ratio is too high to even qualify for a refinance. You can use our DTI ratio calculator to evaluate your finances. Lenders have different requirements for the maximum DTI ratio they’re willing to accept from borrowers, so check to see what it could be.
You have prepayment penalties
This is a fee that lenders may charge when borrowers pay off their loan early. Since refinancing means your new lender will pay off your existing loan, your current lender could charge a significant fee.
How Long Should You Wait Between Refinances?
Aside from the requirements imposed by mortgage lenders, how long you should wait between refinances will depend on your goals and whether you’ll be able to recoup the costs. Like your current mortgage, refinances have closing costs, which can rack up quickly if you refinance multiple times.
“Refinancing fees can get quite expensive, so refinancing each time mortgage rates go a small tick lower probably doesn’t make sense,” Diodato says.
Additionally, your lender may charge a prepayment penalty, which will add to your overall costs when refinancing. That’s why it’s a smart idea to crunch the numbers to check whether refinancing makes sense financially, even though you can refinance your home as often as you want.
David Bizé, a certified financial planner and independent financial advisor at First Allied Securities in Oklahoma City, recommends thinking about whether you can recoup the closing costs if you’re refinancing to lower your interest rate. In other words, you want to save more than what you’ll pay in fees for a refinance to be worth it.
“If you’re just going to break even on your refinance, it can be a lot of hassle for no savings,” Bizé says.
He suggests calculating the break-even point on the refinance before deciding. The break-even point is the number of months you’ll need to live in your home to recoup the costs of refinancing. To save money, you’ll ideally remain in the home for longer.
To calculate the break-even point on a refinance, take the closing costs and divide the total by your monthly savings from your new mortgage payments. For example, if your closing costs are $5,000 and you’ll save $200 per month with a refinance, then it will take you 25 months — a little over two years — to break even. For a refinance to be worth it, you’ll need to remain in your home for at least this amount of time.
The more often you refinance, the more these closing costs will stack up, and the longer you’ll have to stay in the same home to recoup the money.
When Not To Refinance More Than Once
There are several scenarios where it may not make sense to refinance your mortgage multiple times, including a less-than-stellar credit score, high fees, and not-so-favorable interest rates.
Interest rates dip slightly
Lower interest rates could help you save money. However, if the interest rate on your current loan isn’t that much higher than what you can qualify for now, refinancing might not result in enough savings to offset fees and to reach your break-even point.
Your credit score goes up a bit
A higher credit score means you may be able to qualify for more-competitive rates. A slightly higher score than before, though, may not make much of a difference. You may not qualify for a much lower rate to warrant significant savings.
You want to make a major purchase
When you make a major purchase like a vehicle, lenders will check your credit to determine your creditworthiness. If you refinance at the same time, lenders may be more cautious about approving you. That’s because your credit score may take a dip, or your DTI ratio could go up. Plus, taking out a major loan at the same time as a major purchase can signal to lenders that you may rely too much on credit.
You’ll be hit with a prepayment penalty
If your current lender does charge prepayment penalties when you refinance, then check to see if it’s worth it. If the amount you pay won’t be offset by the savings you’ll get from the refinance, then you may be better holding off.
What To Consider When Refinancing More Than Once
Refinancing is a big financial move that shouldn’t be taken lightly. Here are some factors to consider when you’re figuring out when you should refinance your home more than once:
- Your goals. Why do you want to refinance your home? Is it to help you save money or stay on top of your monthly payments? Do you plan on investing the money from a cash-out refinance to increase the value of your home?
- Cost and fees. Refinancing comes with fees, so make sure that you’re able to afford the costs. You’ll also want to be certain that you can recoup those costs and eventually save money.
- Your credit score. Your credit score will take a hit when a hard inquiry shows up on your credit report. Also, you’ll likely get a better interest rate if you have a good credit score, so it’s smart to try boosting your score before applying for a refinance.
- Refinance requirements. The requirements for a refinance generally include a minimum credit score, a maximum DTI ratio, a minimum level of equity in the home, and a waiting period between refinances for certain loans.
- Break-even point. If you plan on moving soon, then your refinance might end up costing you more than you save.
- Prepayment penalties. If your lender charges prepayment penalties, make sure to run the numbers and check whether it’s worth refinancing. You could also negotiate with your lender to see if any penalties can be waived.
You can use our mortgage refinance calculator to help you decide if refinancing is the right move for you.
FAQ: How Often Can You Refinance?
Here are the answers to some frequently asked questions about refinancing more than once.
Ultimately, refinancing your mortgage multiple times should help with your financial goals. It could be to lower the amount you’ll pay in interest overall, decrease your monthly payments to give you more breathing room in your budget, or pay off your debt faster.
No. A home equity loan is technically a second mortgage on your home. A cash-out refinance is a type of mortgage refinance where homeowners can tap into their home equity.
Even if rates are high, it might be a good idea to refinance your loan if the rate you qualify for is much lower than the one you currently have.
The Bottom Line: How Often Can You Refinance a Mortgage?
While it’s possible to refinance multiple times, how often you can refinance your home will depend on your financial situation. It’s crucial to make sure that refinancing will pay off in the long run. Be aware of the requirements to refinance, the impact it can have on your monthly payments and credit score, and how much refinancing will cost. As long as you understand the different pros and cons of your decision, you can make refinancing multiple times a strategic financial move that ultimately works for you.